Contract:
Contract formation:
Need -
- Offer and acceptance
- Consideration
- Intention to be legally bound
- Both parties must have capacity
Formation of a bilateral contract: Two parties making mutual promises to each other.
Offer and acceptance are judged by the courts objectively.
1. Is the advert / notice / letter / statement an offer or an invitation to treat?
a. an offer requires something that is clear and certain, as well as an intent to be legally bound.
b. Generally (subject to some exceptions) Advertisements, display of goods, invitations to tender and
auctions are all invitations to treat.
i. Advertisements will be considered as offers when it amounts to a unilateral offer –
exception to general rule (Carlill v Carbolic Smoke Company) - advert was a unilateral offer
due to:
1. There was a clear prescribed act, performance of which constituted acceptance.
2. Intention to be bound was shown by the deposit of the £1000 in a bank account and
certainty of the language used in the advert.
3. Similar ads for lost property would also be binding.
ii. Display of goods for sale generally an invitation to treat, despite saying things such as
‘special offer’. This includes websites.
iii. Invitations to tender i.e. ‘I wish to purchase this item or service, how much can you do it
for?’ will be invitations to treat. This is not the case when the invitation to tender explicitly
says that they will accept the highest / lowest bid. They will also bind when (all three need to
be met):
1. The tenders had been solicited from parties who were known to the requesting
party
2. There was an absolute deadline for submission
3. The party requesting tenders had laid down absolute and non-negotiable conditions
for submission.
iv. Auctions – general rule is that the request for bids is an invitation to treat, and offers are
made by bidders. These can be revoked at any time before the fall of the hammer. The
contract is valid at the fall of the hammer or in any other customary manner. In auction sales
that are without reserve, the seller is bound to sell to the highest bidder.
, c. Offer needs to be certain – the council saying they ‘may be prepared to sell’ was not to be
considered as a valid offer. Also needs an intention to be bound. Note the other city council case
where they stated, ‘if you sign this agreement, I will send you the agreement signed on behalf of the
corporation in exchange’. - court held this was an intention to be bound.
2. If an offer, is there a counteroffer or a request for further information?
a. A counteroffer will extinguish the original offer (Hyde v Wrench) whereas a request for information
will NOT extinguish the original offer (Stevenson Jacques v McLean)
3. Is the acceptance in response to the offer?
a. An offer can't be accepted in ignorance of the offer (R v Clarke). An offer can only be accepted by the
person to whom it was made.
4. Is the acceptance a mirror image (unqualified)?
a. Did the offeror state that their offer must be accepted absolutely and unequivocally, with no
modifications? (This links to number 2) - general rule is that the acceptance needs to be a mirror
image of the offer.
5. Is the acceptance made using a valid mode?
a. Has the offeror specified the mode of acceptance using mandatory words & has explicitly excluded
all other modes? - if yes, then only an acceptance in the prescribed mode will bind the offeror
(Manchester Diocesan Council v Comm. & General Investments). If NO, then the acceptance that is
‘no less advantageous’ will bind the offeror (Tinn v Hoffman) - for example, if the offeror states
‘respond to the offer by email’ then any mode that is no less advantageous will suffice (they have
not excluded other modes, no mandatory language has been used etc.) BUT acceptance by post will
most likely be deemed as less advantageous – it is slower.
6. Is the acceptance communicated?
a. For example, by post – a posted acceptance is effective upon proper posting (this means in an official
letter box or in the hands of a postal operative – post men who are only authorised to deliver post
do not count)(Adams v Lindsell) This does not apply if: it was not contemplated that post would be
used (an implied condition that prompt acceptance is required will mean post should not be used), if
it is manifestly inconvenient / absurd, to letters revoking offers, if incorrectly addressed, if
disapplied by offeror. IT DOES APPLY when the letter is delayed or lost. The offeror stating they
‘must receive acceptance’ counts as ousting the postal rule.
b. By telecommunications – when acceptance is sent by instantaneous means (including email), a
contract is created when notice of acceptance is received by the offeror (Entores v Miles
Corporation) What is acceptance is not received? - If the offeree is at fault, then no contract will be
formed. If the offeror is at fault, a contract will be formed. If no-one is at fault, then a contract will
not be formed.
c. What if, in a business context, the acceptance is sent outside of office hours? - Acceptance deemed
received first thing the next day (Mondial Shipping v Astarte). The meaning of office hours depends
on the context (Thomas v BPE Solicitors)
d. Acceptance by a third party? - allowed if the offeree authorised the third party to accept.
e. In unilateral contracts the right to have acceptance communicated is waived. Carlill v Carbolic Smoke
Co. The same applies for reward cases for lost property.
7. At the point of acceptance is the offer still open?
a. Offer can be terminated by:
i. Rejection (including counteroffer) cannot reject an offer then accept it. Counteroffers count
as rejection – cannot make a counteroffer and then try to accept the original offer.
1. Where an offer is made by the offeror on their ‘standard terms’ and an acceptance is
made on the standard terms of the offeree, then they are deemed to have made a
counteroffer.
2. Must distinguish between a counteroffer and a request for further info – i.e. asking
clarification or about whether they would be one to changing certain aspects of the
offer, will not count as a counteroffer. McLean case – offer was extended to sell
steel at a set amount. The offeree responded and asked ‘please wire whether you
would accept [xxx] over [xxx] months, or if not, what the longest limit you would
, give’. They received no response, and they then wired to accept the original offer.
Court held this was not a counteroffer, but a request for more information.
ii. Lapse (if there is a time limit to offer, then the acceptance must happen within the
timeframe, if no time limit, then the offer lapses ‘after a reasonable time’ - reasonable time
is decided on the facts of the case), can also lapse by the death of one of the parties – if the
offeror dies and the offeree knows, then the offer will lapse. If they do not know, then it
probably will not lapse. Death of the offeree will cause the offer to lapse.
iii. Revocation (Postal rule does not apply – Byrne v Van Tienhoven), offeror is allowed to
revoke the offer any time before a valid acceptance. This revocation does need to be
communicated to the offeree. The revocation is valid from the point of communication. In
terms of unilateral offers, then the revocation can occur at any time prior to the full
completion of the required act.
1. However, in the case of Errington, a unilateral offer by a father to his children to give
them the house if they pay off the mortgage on the house could not be revoked
once they had started to make payments. The offer could not be revoked unless
they stopped making payments.
2. Where unilateral offers (as in Carbolic) are made very widely, revocation can be
made if the offeror takes reasonable steps to bring the revocation to the attention of
all those who may have read the offer.
Certainty of terms:
Binding contracts require all material terms to be certain and complete. Only an agreement which is sufficiently
certain can be enforced by a court.
To determine this, the court applies an objective test – they will ask whether ‘in all the circumstances of the case,
the parties have agreed all the terms they considered to be a precondition to creating legal relations.’
- An agreement on ‘hire-purchase terms’ was held to be uncertain. There are too many different kinds of hire-
purchase agreements based on a variety of different terms.
- An agreement to buy timber ‘of fair specification’ was held to be valid. The court considered that the words
could be given a reasonable meaning (particularly in light of the parties’ previous dealings).
Intention to create legal relations:
Commercial agreements:
- Includes business to business, individual to business or even individual to individual when the agreement is
of a business nature, for example, buying a car through an online advert. The onus is on the party claiming
intention to create legal relations was not present to rebut the presumption.
- The phrase ‘subject to contract’ is judicially recognised when it is included in agreements to show they are
not intending to be legally bound until a contract is executed.
, Social and domestic agreements:
- In case of social, family or domestic agreements, the presumption is that the parties do not intend to be
legally bound by the agreement – the presumption needs to be rebutted by the party claiming that they
were intended.
- The court is more likely to find that the presumption is rebutted when the case is one of spouses who are in
the middle of, or have separated. In any case, they will look into the language used and the circumstances to
see if the presumption should be rebutted.
Capacity:
With minors, the general rule is that contracts with minors are NOT binding. This includes where the child has lied
about their age or the other party is otherwise unaware of their infancy.
There are two main exceptions, being:
- Where the contract relates to necessaries
- And contracts of employment, apprenticeship or education.
Necessaries:
A minor will be bound to a contract to supply necessaries to them if it is for their benefit. The minor must pay a
‘reasonable price’ for these rather than the actual cost of the ‘necessaries’ supplied.
Under the Sale of Goods Act 1979, ‘necessaries’ means goods suitable to the condition in life of the minor or other
person connected and to thier actual requirements at the time of the sale and delivery.
- In the case of Nash, 11 waistcoats provided to an undergraduate at Cambridge at the time was suitable for
his situation, but not necessary as he already had sufficient clothing. Contract was deemed not enforcable.
Contracts of employment, apprenticeship or education:
- A minor will be bound by such contracts, but only if it is for their benefit. For example, in Aylesbury football
club, a contract for a young footballer was not enforcable as it provided them with no training or experience,
the terms were onerous for him (they restricted his freedom to pursue a career in football and the payment
of wages was at the discretion of his employer).
The effect of entering into a contract with a minor:
- Unenforceable against the minor BUT the minor can enforce the contract themselves.
- If the minor ratifies the contract once they turn 18, then the contract will be binding.
Contract formation:
Need -
- Offer and acceptance
- Consideration
- Intention to be legally bound
- Both parties must have capacity
Formation of a bilateral contract: Two parties making mutual promises to each other.
Offer and acceptance are judged by the courts objectively.
1. Is the advert / notice / letter / statement an offer or an invitation to treat?
a. an offer requires something that is clear and certain, as well as an intent to be legally bound.
b. Generally (subject to some exceptions) Advertisements, display of goods, invitations to tender and
auctions are all invitations to treat.
i. Advertisements will be considered as offers when it amounts to a unilateral offer –
exception to general rule (Carlill v Carbolic Smoke Company) - advert was a unilateral offer
due to:
1. There was a clear prescribed act, performance of which constituted acceptance.
2. Intention to be bound was shown by the deposit of the £1000 in a bank account and
certainty of the language used in the advert.
3. Similar ads for lost property would also be binding.
ii. Display of goods for sale generally an invitation to treat, despite saying things such as
‘special offer’. This includes websites.
iii. Invitations to tender i.e. ‘I wish to purchase this item or service, how much can you do it
for?’ will be invitations to treat. This is not the case when the invitation to tender explicitly
says that they will accept the highest / lowest bid. They will also bind when (all three need to
be met):
1. The tenders had been solicited from parties who were known to the requesting
party
2. There was an absolute deadline for submission
3. The party requesting tenders had laid down absolute and non-negotiable conditions
for submission.
iv. Auctions – general rule is that the request for bids is an invitation to treat, and offers are
made by bidders. These can be revoked at any time before the fall of the hammer. The
contract is valid at the fall of the hammer or in any other customary manner. In auction sales
that are without reserve, the seller is bound to sell to the highest bidder.
, c. Offer needs to be certain – the council saying they ‘may be prepared to sell’ was not to be
considered as a valid offer. Also needs an intention to be bound. Note the other city council case
where they stated, ‘if you sign this agreement, I will send you the agreement signed on behalf of the
corporation in exchange’. - court held this was an intention to be bound.
2. If an offer, is there a counteroffer or a request for further information?
a. A counteroffer will extinguish the original offer (Hyde v Wrench) whereas a request for information
will NOT extinguish the original offer (Stevenson Jacques v McLean)
3. Is the acceptance in response to the offer?
a. An offer can't be accepted in ignorance of the offer (R v Clarke). An offer can only be accepted by the
person to whom it was made.
4. Is the acceptance a mirror image (unqualified)?
a. Did the offeror state that their offer must be accepted absolutely and unequivocally, with no
modifications? (This links to number 2) - general rule is that the acceptance needs to be a mirror
image of the offer.
5. Is the acceptance made using a valid mode?
a. Has the offeror specified the mode of acceptance using mandatory words & has explicitly excluded
all other modes? - if yes, then only an acceptance in the prescribed mode will bind the offeror
(Manchester Diocesan Council v Comm. & General Investments). If NO, then the acceptance that is
‘no less advantageous’ will bind the offeror (Tinn v Hoffman) - for example, if the offeror states
‘respond to the offer by email’ then any mode that is no less advantageous will suffice (they have
not excluded other modes, no mandatory language has been used etc.) BUT acceptance by post will
most likely be deemed as less advantageous – it is slower.
6. Is the acceptance communicated?
a. For example, by post – a posted acceptance is effective upon proper posting (this means in an official
letter box or in the hands of a postal operative – post men who are only authorised to deliver post
do not count)(Adams v Lindsell) This does not apply if: it was not contemplated that post would be
used (an implied condition that prompt acceptance is required will mean post should not be used), if
it is manifestly inconvenient / absurd, to letters revoking offers, if incorrectly addressed, if
disapplied by offeror. IT DOES APPLY when the letter is delayed or lost. The offeror stating they
‘must receive acceptance’ counts as ousting the postal rule.
b. By telecommunications – when acceptance is sent by instantaneous means (including email), a
contract is created when notice of acceptance is received by the offeror (Entores v Miles
Corporation) What is acceptance is not received? - If the offeree is at fault, then no contract will be
formed. If the offeror is at fault, a contract will be formed. If no-one is at fault, then a contract will
not be formed.
c. What if, in a business context, the acceptance is sent outside of office hours? - Acceptance deemed
received first thing the next day (Mondial Shipping v Astarte). The meaning of office hours depends
on the context (Thomas v BPE Solicitors)
d. Acceptance by a third party? - allowed if the offeree authorised the third party to accept.
e. In unilateral contracts the right to have acceptance communicated is waived. Carlill v Carbolic Smoke
Co. The same applies for reward cases for lost property.
7. At the point of acceptance is the offer still open?
a. Offer can be terminated by:
i. Rejection (including counteroffer) cannot reject an offer then accept it. Counteroffers count
as rejection – cannot make a counteroffer and then try to accept the original offer.
1. Where an offer is made by the offeror on their ‘standard terms’ and an acceptance is
made on the standard terms of the offeree, then they are deemed to have made a
counteroffer.
2. Must distinguish between a counteroffer and a request for further info – i.e. asking
clarification or about whether they would be one to changing certain aspects of the
offer, will not count as a counteroffer. McLean case – offer was extended to sell
steel at a set amount. The offeree responded and asked ‘please wire whether you
would accept [xxx] over [xxx] months, or if not, what the longest limit you would
, give’. They received no response, and they then wired to accept the original offer.
Court held this was not a counteroffer, but a request for more information.
ii. Lapse (if there is a time limit to offer, then the acceptance must happen within the
timeframe, if no time limit, then the offer lapses ‘after a reasonable time’ - reasonable time
is decided on the facts of the case), can also lapse by the death of one of the parties – if the
offeror dies and the offeree knows, then the offer will lapse. If they do not know, then it
probably will not lapse. Death of the offeree will cause the offer to lapse.
iii. Revocation (Postal rule does not apply – Byrne v Van Tienhoven), offeror is allowed to
revoke the offer any time before a valid acceptance. This revocation does need to be
communicated to the offeree. The revocation is valid from the point of communication. In
terms of unilateral offers, then the revocation can occur at any time prior to the full
completion of the required act.
1. However, in the case of Errington, a unilateral offer by a father to his children to give
them the house if they pay off the mortgage on the house could not be revoked
once they had started to make payments. The offer could not be revoked unless
they stopped making payments.
2. Where unilateral offers (as in Carbolic) are made very widely, revocation can be
made if the offeror takes reasonable steps to bring the revocation to the attention of
all those who may have read the offer.
Certainty of terms:
Binding contracts require all material terms to be certain and complete. Only an agreement which is sufficiently
certain can be enforced by a court.
To determine this, the court applies an objective test – they will ask whether ‘in all the circumstances of the case,
the parties have agreed all the terms they considered to be a precondition to creating legal relations.’
- An agreement on ‘hire-purchase terms’ was held to be uncertain. There are too many different kinds of hire-
purchase agreements based on a variety of different terms.
- An agreement to buy timber ‘of fair specification’ was held to be valid. The court considered that the words
could be given a reasonable meaning (particularly in light of the parties’ previous dealings).
Intention to create legal relations:
Commercial agreements:
- Includes business to business, individual to business or even individual to individual when the agreement is
of a business nature, for example, buying a car through an online advert. The onus is on the party claiming
intention to create legal relations was not present to rebut the presumption.
- The phrase ‘subject to contract’ is judicially recognised when it is included in agreements to show they are
not intending to be legally bound until a contract is executed.
, Social and domestic agreements:
- In case of social, family or domestic agreements, the presumption is that the parties do not intend to be
legally bound by the agreement – the presumption needs to be rebutted by the party claiming that they
were intended.
- The court is more likely to find that the presumption is rebutted when the case is one of spouses who are in
the middle of, or have separated. In any case, they will look into the language used and the circumstances to
see if the presumption should be rebutted.
Capacity:
With minors, the general rule is that contracts with minors are NOT binding. This includes where the child has lied
about their age or the other party is otherwise unaware of their infancy.
There are two main exceptions, being:
- Where the contract relates to necessaries
- And contracts of employment, apprenticeship or education.
Necessaries:
A minor will be bound to a contract to supply necessaries to them if it is for their benefit. The minor must pay a
‘reasonable price’ for these rather than the actual cost of the ‘necessaries’ supplied.
Under the Sale of Goods Act 1979, ‘necessaries’ means goods suitable to the condition in life of the minor or other
person connected and to thier actual requirements at the time of the sale and delivery.
- In the case of Nash, 11 waistcoats provided to an undergraduate at Cambridge at the time was suitable for
his situation, but not necessary as he already had sufficient clothing. Contract was deemed not enforcable.
Contracts of employment, apprenticeship or education:
- A minor will be bound by such contracts, but only if it is for their benefit. For example, in Aylesbury football
club, a contract for a young footballer was not enforcable as it provided them with no training or experience,
the terms were onerous for him (they restricted his freedom to pursue a career in football and the payment
of wages was at the discretion of his employer).
The effect of entering into a contract with a minor:
- Unenforceable against the minor BUT the minor can enforce the contract themselves.
- If the minor ratifies the contract once they turn 18, then the contract will be binding.
